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Innovating compliance
Lois Engstrand, Marketing Manager05/07/21 00:00

Why compliance needs innovation

While compliance technology has advanced by leaps and bounds over the past few years, firms are yet to make the most of what's on offer. In 2019, tech was the top priority for 57% of compliance officers. But only 10% of firms are getting full value out of the tools they've invested in.

So what's stopping them from taking advantage of what they have at their disposal? What should innovation look like? And what opportunities could firms be missing out on if they lag behind?

In a recent webinar — Why compliance needs innovation — we rounded up a panel of experts to discuss these and other burning questions about the future of compliance.

Here's what we learned.

Managing Covid-19 change

"On one level," says Fidelity International's Head of Compliance Operations David Cowland, "it [innovation] can be as simple as using technology to replace spreadsheets. But on a more complex level, I think it's about transforming compliance into a partner.

"It's about developing a proactive, forward-thinking, technology-driven approach to supporting the firm's business strategy…"

That compliance teams need to become more proactive is old news. In financial services, they typically deal with up to 200 regulatory updates a day, all while advising on regulatory obligations and implementing new rules. The upshot is that they're often so busy putting out fires they don't have time to look at the big picture and planning ahead.

But it's not just the scale and scope of the compliance workload that's the issue. It's also finding ways to communicate effectively and making sure everyone is on the same page.

"To fulfil its role," says Citi's Head of Regulatory Strategy Sophia Bantanidis, "compliance needs to give advice to the business, it needs to do it quickly, and it needs to do it consistently. This is challenging, especially when compliance needs to make a judgement call on the interpretation of rules and regulations.

"Good communication is the backbone of the relationship between compliance and the rest of the business."

Natasha Vernier, FINTRAIL's MD of Innovation continues:

" I think it's just a ludicrous proposition that you would expect hundreds, maybe thousands of employees to remember the latest way they're supposed to do something…

"But if you can use technology to automate what bits of information need to be included in a draft, for instance... you get around that whole problem of relying on human beings who are prone to forgetting things, and you end up with a much more secure system. "

Putting the customer first

Innovation doesn't just help streamline the operational side of compliance, it can also transform the user experience. And this is a concept challenger banks in particular have put front of mind.

Recalling her time as Head of Financial Crime at Monzo, Vernier says they tried to implement regulations in ways "that make it easier for customers and give them a really great experience while being cheaper for us and more effective."

This mindset has given challenger banks one of their biggest competitive advantages. The Battle To Onboard, a study of consumer behaviour in Finland, Germany, the Netherlands, Norway, the UK, and Sweden, found that financial services applications have a 38% abandonment rate. And the most common reason for abandonment is that the process is perceived as being too hard.

But while compliance is often scapegoated for poor customer experience, the truth is that, with innovation, you can comply and make things easier for customers. The key is to try and think outside the box.

Vernier puts it this way:

" There was nobody sitting there [at Monzo] saying: 'You know, risk assessments are all done in most banks using this tool in this way, therefore we must do it that way.'

" We would give them the freedom and the space to try to work out what made most sense, so that we were compliant, but also made it easier for everybody to understand what was going on and, if needed, for us to share information with the regulators."

Chicken, egg, or both?

For Bantanidis, the answer is 'a bit of both'.

"There's definitely demand from institutions like ourselves. And this demand is always on the back of a pain point or on the back of inefficiencies.

"On the other side, we have seen many startups set up by people who came from banks. They saw the problems, came up with clever ways of fixing them, and created a regulatory technology firm."

That said, whether it's organisations looking to innovate or deploying ready-made tech from third party providers, it's crucial for them to have the right mindset and involve compliance from the get go.

Says Cowland:

"You get different levels of people who want to see change. I think it often comes down to how open people are to changing the way that they do things.

"We've also got to remember compliance teams are the gatekeepers of all that regulatory knowledge that's coming through... but they're often the last to know about things. It's better to bring compliance in at the beginning rather than six months down the line saying: 'We're ready to go. Can you sign this off?' and compliance says 'Well, hold on. We've got some compliance issues here.' "

The need for a holistic approach

As the regulatory burden continues to grow, investing in regtech will become increasingly mission-critical. The flipside is that the market is becoming ever more saturated, making it harder to pick the right tools.

So what should you look at before you decide to invest in regtech?

Says Bantanidis:

"There are a number of criteria we tend to look at. Number one, does the solution add value and address a pain point? That's super important, because without any value, then what's the point?

Number two, what's the value proposition and how innovative is the solution?

Thirdly, how mature is the company? What type of clients do they serve? What's the geographical coverage?

Number four, how soon could we deploy?

Number 5, is it scalable or just focused on one small area or geographical location?

"And finally, we're going to look at how feasible it is for us to integrate the solution."

These criteria can help firms stay focused when picking the right tech to address their compliance problems.

That said, it's also important not to lose sight of the big picture.

Cowland says:

"...there's a potential future problem where we have swapped out endless spreadsheets for dozens of applications. So the machines are doing a lot of heavy lifting, but the compliance officer is saying: 'How do I get the information from one application to another?'

"So, I think… yes, you want to move from spreadsheets to applications. But you also want to make sure people aren't logging in and out between all the different applications."

Put another way, with all their benefits, using too many tools can end up backfiring, replacing physical silos with online fragmentation. So a strategy that prioritises a more holistic approach is key.

Want more insights about the future of compliance and how innovation can help financial firms gain a competitive edge?

Watch the full webinar Why compliance needs innovation here